That’s sounds like inexperience and lack of knowledge about other markets talking.

Vintage year is also very important, is this a c-class property (which it sounds like it is, maybe c-), B-class etc. 

The 25K would go towards a rate buy down.As far as accounting for cap ex and maintenance for newly replaced/updated items, I'd still recommend doing it.

I have had a lot worse and never been forced to replace it to get insurance.  

This sounds suspicious. 

sounds like you are on the right track - house hacking or BRRRR to jumpstart the journey is a pretty solid tried and true gameplan

Sounds about accurate.What you should be focusing on is hopefully you are getting a return(Cash-flow) from your rentals and you are not paying tax on that.This would be better in comparison, to other investments such as dividend or interest income.

The downside is if it gets damaged you have to replace the whole sheet.

So the seller said they are going to replace all 3. 

Using your own funds to pay down your loan so you get a bigger loan sounds like a zero sum gain (aka IE using 1 dollar to pay down loan so you can net 1 more dollar from the new proposed loan) So how are you going to net more cash when spending 1 dollar to get another 1 dollar ?